Canadian Mortgage News & Canada's Mortgage Trends

Mortgage Bytes

• As of the 4^th quarter, 19% of Countrywide  Financial's   subprime borrowers have missed one or more mortgage payments.  Countrywide Financial is America's biggest mortgage lender.  Source:  Financial Post
• Quote of the week from the Ottawa Citizen: "The Americanization of the Canadian mortgage market. That's what's going on," says Tony Humble of Northwood Mortgage Limited. “…now you are seeing a flood of American insurers and lenders who are looking at Canada as basically virgin territory."
• CMT is proud to participate in the 2nd  Canadian Tour of Personal Finance Blogs hosted by the Money Diva. The event kicks off May 7, 2007.

It's "Go-time" for PMI Group

PMI Group now has Ottawa’s approval to start selling mortgage default insurance in Canada. The company is Canada's 4th major insurer.  PMI Group is still awaiting is provincial licenses but expects them “in a matter of weeks.”

Mortgage Life Insurance. Good Deal or Not?

If you're interested in mortgage life insurance read this article by the Toronto Star. 

The mortgage insurance offered by some banks isn't too hot when compared to regular term life insurance. 

The Mortgage Protection Plan offered through mortgage brokers is a bit better.  According to MPP, it's both portable and "33 per cent cheaper per dollar of coverage over a 25-year mortgage term."  That, of course, assumes you will need mortgage insurance for 25 years.

Mortgage Bytes

• Invest or pay down your mortgage?  The debate never ends.  In this Globe & Mail article financial planner Adrian Mastracci suggests "the easiest investment decision to make is to pay down the mortgage."
• On another note, here's a positive development for First Nations members seeking mortgages

Mortgage Bytes

• The Bank of Canada has left its key lending rate unchanged at 4.25%.  The Bank says there is a "slight tilt" towards higher rates in the future, as inflation concerns still linger.  (Source:  Bank of Canada)
• A BMO survey of first-time home buyers suggests 29% of those age 21 to 34 are living at home to save for a downpayment.  (Source:  National Post)
• Here's a less optimistic story by the Globe & Mail on the new 80% downpayment rule.  Note: If you have a home equity loan you can now borrow up to 80% of your home's value without insurance, instead of 75%.
• Canada's biggest non-bank mortgage lender, First National, is now offering mortgages insured by newcomer AIG United Guaranty.  This will probably improve the range of First National mortgages since AIG is expected to be increasingly competitive with their underwriting policies.  (Source:  Investment Executive)

Mortgage Pre-Approvals Decline

BMO says only 62% of first-time home buyers are getting pre-approved before they go house hunting.  That's down from 73% in 2001.

Smart home buyers prepare themselves first.  Why get pre-approved?

• Security.  With a pre-approval your rate is locked in. 
• Confidence.  Knowing what homes you qualify for ahead of time avoids disappointment and saves you time.
• Power.  Pre-approved buyers appear serious and almost always have more negotiating pull with sellers and real estate agents.
• Knowledge.  The pre-approval process alerts you to problems with your application that could delay financing.  In addition, by understanding the latest mortgage products you might find that you can afford more home for less money.

But what if rates go down and I am locked in, you ask?  In this case most lenders will let you adjust to the better rate before closing. 

Avoid Insurance With 20% Down

Starting this week you'll need just 20% down to avoid mortgage insurance fees.  The old law was 25%, and it's been around for 40 years.

This change should save you about $2500, for example, on a typical $300,000 home.  The savings includes the mortgage insurance fee itself and the interest you pay to borrow for the fee. 

The savings will apply to both new purchases and refinances.

The only ones not celebrating this new law are CMHC, Genworth and AIG insurance.  They're about to lose a nice chunk of insurance premium revenue.  Fortunately, according to Jim Rawson from Invis (as quoted in The Star), competition among Canada's mortgage insurers should prevent them from raising premiums to offset this revenue loss.

Key Point:  Jim also notes that it doesn't always make sense to defer buying a home while saving for a 20% downpayment.  For example, if you currently have 18% down, and it takes you 12 months to get the other 2%, even a tiny appreciation in home prices during that time could offset the mortgage insurance fees you're trying to avoid.

Mortgage Bytes

• Edmonton has usurped Calgary as Canada's top dog in 1-year house appreciation, with 42.5% year-over-year gains.
• The stock of Xceed, a Canadian subprime lender, has been on a tear throughout the U.S. subprime crisis.  It's up 27% from its March lows, in part because of less competition from U.S. lenders who are funding fewer subprime mortgages.  
• New mortgage companies keep springing up.  U.S.-backed Manchester Financial is launching a prime mortgage business in Canada in Q3 2007.  They'll start in Ontario and expand to subprime products and other provinces in 2008.
• National Bank has launched a "Made-to-Measure" mortgage, designed to diversify your mortgage risk and provide flexibility.  It lets you divide your mortgage into multiple terms, with different rates, payment frequencies, and amortizations.  For example, you can have a 2-year variable rate for 1/2 of your mortgage (to benefit from lower short-term rates) and a 5-year fixed rate for the other 1/2 (to provide fixed-rate security).
• Citizens Bank now offers a "Green" mortgage.  Borrowers get a free home energy audit, recycling bin, fluorescent light bulbs, coupons, and samples with a retail value "over $800."  Citizens also donates $100 for you to the Conservation Council of Ontario.

Feel free to Email us or call MyVMB if you need more info on these new mortgages.

Subprime Comparison Reports

One of our readers, Jim, was kind enough to post links for three excellent reports comparing the U.S. and Canadian Subprime markets.  Here they are:

• Mortgage Risk - Canada vs. US -- Benjamin Tal, CIBC
• U.S. - Canada Mortgage Market Comparison -- Xceed
• Comparing the Canadian and U.S. Subprime and Alternative Mortgage Markets -- Mortgage Architects

Jim also makes another point:

"There is a danger when comparing Canadian and U.S. "subprime" markets. In the U.S., subprime means subprime only and not Alt-A or Jumbos. While in Canada the media and analysts tend to lump the two together into a Canadian subprime or "non-traditional" category."

Subprime a US-only Problem

Bob Ord, CEO of Mortgage Architects, reaffirms in this Toronto Sun article that Canada should be immune from the subprime fiasco hammering our neighbours to the south.

For one thing, Canadian lenders are "paid for the deficiency on sale, and can pursue wage garnishees."  50% of Canadian mortgage defaults therefore end up "curing" themselves.

That's not to mention the fact that Canadian mortgage delinquencies are currently about 3%, versus 14% in the U.S. (according to the story).